AS-AD and potential GDP Ch23 Economics Ch08 Macroeconomics MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Real variables A) are those that determine the cost of living. B) are those that determine the standard of living. C) include variables such as the price level and inflation rate. D) None of the above answers is correct. 2) The classic dichotomy is a discovery that states A) real and nominal variables are actually the same thing. B) when the economy is at full employment, the forces that determine the real variables are independent of those that determine the nominal variables. C) throughout the business cycle, the forces that determine the real variables are independent of those that determine the nominal variables. D) only nominal variables cause business cycles. 3) Potential GDP is defined as A) the level of GDP at which the aggregate demand and aggregate supply curves cross. B) the current level of real GDP. C) nominal GDP, that is, the level of GDP not corrected for price changes. D) the level of real GDP at full employment. 4) The level of real GDP the economy produces at full employment is called A) possible GDP. B) nominal GDP. C) potential GDP. D) maximum GDP. 5) Potential GDP is the level of A) GDP that is impossible to achieve. B) real GDP that the economy could produce at full employment. C) nominal GDP that is smaller than the real GDP. D) GDP that fluctuates around actual GDP. 6) Potential GDP is the GDP that the economy A) produces in a particular quarter. B) would produce if unemployment were equal to zero. C) produces when inflation is equal to zero. D) would produce if it were at full employment. 7) When the economy is at full employment A) the unemployment rate is equal to zero. B) real GDP is equal to potential GDP. C) real GDP is greater than potential GDP.

D) potential GDP is greater than real GDP. 8) Which of the following statements is NOT correct about potential GDP? A) Actual real GDP equals potential GDP when the economy is at full employment. B) Real GDP can be less than potential GDP. C) Real GDP can exceed potential GDP. D) When real GDP equals potential GDP, it also equals nominal GDP. 9) The aggregate supply curve illustrates that the A) higher the price level, the greater the quantity of real GDP supplied. B) higher the price level, the smaller the quantity of real GDP supplied. C) aggregate demand curve is not needed to determine the aggregate price level. D) price level does not affect the quantity of real GDP supplied. 10) If the price level increases from 110.0 to 115.0, the quantity of A) real GDP supplied will increase. B) real GDP supplied will decrease. C) potential GDP will decrease. D) real GDP demanded will increase. 11) The aggregate supply curve shifts rightward when A) potential GDP decreases. B) money wage rates fall. C) income taxes increase. D) government purchases increase. 12) The aggregate supply curve will shift A) rightward if potential GDP decreases. B) rightward if the money wage rate decreases. C) rightward if the money wage rate increases. D) leftward if potential GDP increases. 13) If the money wage rate increases, then the A) aggregate supply curve shifts rightward. B) potential GDP increases. C) potential GDP decreases. D) aggregate supply curve shifts leftward. 14) Which of the following statements is correct? A) The price level does not effect the level of real GDP demanded. B) The lower the price level, the greater the quantity of real GDP demanded C) The lower the price level, the more the aggregate demand curve shifts rightward. D) The lower the price level, the more the aggregate demand curve shifts leftward. 15) Which of the following factors does NOT change aggregate demand? A) a change in the interest rate B) a change in the quantity of money C) a change in the income of foreign nations D) a change in potential GDP

16) Headlines read "Federal Government Boosts Purchases." An increase in government purchases of goods and services leads to the A) aggregate supply curve shifting rightward. B) aggregate supply curve shifting leftward. C) aggregate demand curve shifting rightward. D) aggregate demand curve shifting leftward. 17) Which of the following leads to a rightward shift of the aggregate demand curve? A) a decrease in government purchases of goods and services B) a tax rate increase C) a decrease in the interest rate D) a reduction in the real wage rate 18) Mexico and the United States are trade partners. Other things remaining the same, a decrease of Mexico's real GDP leads to A) an increase in the U.S. aggregate demand curve. B) a decrease in the U.S. aggregate demand curve. C) an increase in the U.S. aggregate supply curve. D) a decrease in the U.S. aggregate supply curve. 19) Which of the following statements is correct? A) An increase in the price level will shift the aggregate demand curve rightward. B) An increase in the price level will shift the aggregate demand curve leftward. C) An increase in the quantity of the money in the economy will shift the aggregate demand curve rightward. D) An increase in the interest rate will shift the aggregate demand curve rightward. 20) The aggregate demand curve shifts A) rightward if other nations' real incomes increase. B) leftward if other nations' real incomes increase. C) leftward if the government cuts taxes. D) rightward if government purchases decrease. 21) An increase in the price level ____ the quantity of real GDP supplied and ____ the quantity of real GDP demanded. A) increases; increases B) increases; decreases C) decreases; increases D) decreases; decreases 22) A macroeconomic equilibrium that is below the full-employment equilibrium occurs when the A) quantity of real GDP supplied exceeds the quantity of real GDP demanded. B) quantity of real GDP demanded exceeds the quantity of real GDP supplied. C) equilibrium real GDP is less than potential GDP. D) price level is rising.

23) When the quantity of real GDP demanded exceeds the quantity of real GDP supplied, firms A) increase production and prices. B) decrease production and prices. C) increase production and lower prices. D) decrease production and increase prices. 24) Macroeconomic equilibrium occurs A) when the economy is at its potential level of GDP. B) when real GDP is equal to nominal GDP. C) when the quantity of real GDP demanded is equal to the quantity of real GDP supplied. D) only when the aggregate supply curve intersects the aggregate demand curve at the level of potential GDP. 25) According to the AS/AD model the A) aggregate quantity supplied is typically greater than the aggregate quantity demanded, thereby leading to unemployment. B) equilibrium is where the AS curve crosses the AD curve but the amount of real GDP at this point is not always equal to potential GDP. C) aggregate quantity demanded is typically greater than the aggregate quantity supplied, thereby leading to inflation. D) AS curve is always equal to potential GDP. 26) A deep recession hits the world economy and real GDP in the rest of the world decreases. In the United States, A) aggregate supply and aggregate demand both increase and the price level rises. B) aggregate supply decreases while aggregate demand does not change and the price level rises. C) aggregate demand decreases while aggregate supply does not change and the price level falls. D) aggregate supply increases and aggregate demand decreases, so the effect on the price level is uncertain.

27) In the figure above, the curve labeled A is the ____ and the curve labeled B is the ____. A) aggregate demand curve; aggregate supply curve B) aggregate supply curve; aggregate demand curve C) curve showing potential GDP; aggregate supply curve D) aggregate supply curve; curve showing potential GDP 28) In the figure above, the curve labeled A is the ____ and the curve labeled C is the ____. A) aggregate demand curve; aggregate supply curve B) aggregate supply curve; aggregate demand curve C) curve showing potential GDP; aggregate demand curve D) aggregate supply curve; curve showing potential GDP 29) An economy is at a full-employment equilibrium, and then the aggregate demand curve shifts leftward. As a result, the price level ____ and real GDP ____. A) rises; increases B) rises; decreases C) falls; increases D) falls; decreases 30) Choose which statement is most correct. A) Real GDP can never exceed potential GDP. B) Real GDP must always equal potential GDP. C) At times, real GDP can exceed potential GDP. D) None of the above answers is correct.

31) The figure above shows A) a below full-employment equilibrium. B) an above full-employment equilibrium. C) a full-employment equilibrium. D) a potential GDP equilibrium. 32) If we look at the U.S. economy since 1970, we see that the economy A) in 2002 was well above its level of potential GDP. B) has fluctuated above and below its level of potential GDP during the period. C) has stayed below its level of potential GDP during the period. D) has stayed above its level of potential GDP during the period. 33) The aggregate demand/aggregate supply model concludes that inflation is the result of A) aggregate supply growing more rapidly than aggregate demand. B) aggregate demand growing more rapidly than aggregate supply. C) rapid growth in potential GDP. D) decreases in potential GDP. 34) Inflation occurs because aggregate A) supply increases more rapidly than aggregate demand. B) supply and aggregate demand increase at the same rate. C) demand increases more rapidly than aggregate supply. D) supply and aggregate demand decrease at the same rate. 35) The aggregate demand-aggregate supply model concludes that business cycles are the result of A) high inflation. B) low inflation. C) differing rates of growth of aggregate supply and aggregate demand. D) increases in the levels of potential GDP and real GDP.

36) The sustainable upper limit of real GDP is a level of GDP that is A) greater than potential GDP, but by how much greater is unknown and controversial. B) less than potential GDP, but by how much less is unknown and controversial. C) potential GDP. D) None of the above answers is correct. 37) A country's potential GDP is determined, in part, by A) the equilibrium price level. B) demand and supply in the labor market. C) the aggregate demand and aggregate supply equilibrium. D) actual real GDP. 38) A country reports that its actual real GDP is greater than its potential GDP. It must be that A) an error was made when calculating actual real GDP. B) the price level is increasing. C) more workers decided to quit work in order to enjoy leisure time. D) None of the above answers is correct. 39) A country reports that for the year 2003, real GDP was $3,500 billion and nominal GDP was $4,200 billion. If the country's potential GDP is $3,900 billion, the country is A) producing at a level less than its full-employment level of output. B) temporarily producing beyond its business cycle peak. C) producing at its full-employment level of output. D) efficiently using all of its resources to produce output. 40) The production function is a relationship between the amount of labor employed and A) the maximum quantity of real GDP that can be produced. B) the maximum quantity of nominal GDP that can be produced. C) the wage rate paid to the workers. D) all other resources at different levels of employment. 41) As additional units of labor hours are employed, holding all other factors constant, along the production function, A) real GDP increases at an increasing rate. B) nominal GDP decreases at an increasing rate. C) real GDP increases at a decreasing rate. D) real GDP increase at a constant rate. 42) The production function relationship between real GDP and labor is a A) straight line. B) curve that becomes less steep because of diminishing returns. C) curve that becomes steeper because of increasing returns. D) curve that becomes steeper because of diminishing returns. 43) The production function shows the maximum quantity of real GDP that can be produced as A) technology changes, holding everything else the same. B) labor changes, holding everything else the same. C) the price level changes, holding everything else the same. D) technology and labor changes, holding everything else the same.

44) As the quantity of labor employed increases, the production functions exhibits a A) positive, linear relationship. B) positive relationship, with each additional unit of labor producing less additional real GDP. C) positive relationship, with each additional unit of labor producing more additional real GDP. D) negative, linear relationship. 45) The idea of "diminishing returns" means that real GDP ____ as the quantity of labor increases. A) increases at a slower rate B) decreases at a slower rate C) increases at a faster rate D) decreases at a faster rate 46) As more labor is hired, moving along the production function diminishing returns occur because A) workers are overworked and so their productivity decreases. B) the wage rate paid is too low and so workers decrease their work effort. C) there are fixed quantities of other resources. D) None of the above answers is correct. 47) Employing an additional 1 billion hours of labor increases real GDP by $12 billion. Employing another 1 billion hours beyond the first 1 billion increases real GDP by $11 billion. Hence we can conclude from this information that as employment increases, real GDP A) increases at an increasing rate. B) decreases at an increasing rate. C) decreases at a decreasing rate. D) increases at a decreasing rate.

tableau1 ( ( cell cell ) (cell cell) (~%5 ~%6) ) 48) The table above gives a nation's production function. Which of the following is NOT an attainable combination of real GDP and labor? A) Real GDP of $7.5 trillion and labor of 100 billion hours per year. B) Real GDP of $7.5 trillion and labor of 150 billion hours per year. C) Real GDP of $7.8 trillion and labor of 150 billion hours per year. D) Real GDP of $7.5 trillion and labor of 50 billion hours per year.

49) The above figure shows a nation's production function. Point A is A) attainable if the economy is inefficient. B) unattainable given the state of the economy. C) attainable if the nation uses resources efficiently. D) the maximum amount of real GDP the nation can produce. 50) The above figure shows a nation's production function. Point B is A) unattainable. B) attainable if the nation uses resources inefficiently. C) attainable if the nation uses resources efficiently. D) the maximum amount of real GDP the nation can produce. 51) The above figure shows a nation's production function. Point C is A) unattainable given the nation's resource level. B) attainable if the nation uses resources efficiently. C) attainable if the nation uses resources inefficiently. D) the maximum amount of real GDP the nation can produce.

52) The above figure that most accurately shows a production function is A) Figure A. B) Figure B. C) Figure C. D) Figure D.

53) Based on the production function in the above figure, when the economy uses 300 billion hours of labor, the potential GDP is A) $5.0 trillion. B) $7.5 trillion. C) $10.0 trillion. D) $12.5 trillion. 54) Based on the production function in the above figure, which of the following is an attainable combination of labor and real GDP? A) 300 billion hours of labor and real GDP of $12.5 trillion. B) 300 billion hours of labor and real GDP of $5.0 trillion. C) 100 billion hours of labor and real GDP of $10.0 trillion. D) None of the above are attainable combinations of labor and real GDP. 55) The total labor hours that all the firms in the economy plan to hire during a given time period at one particular real wage rate is the A) demand for labor. B) quantity of labor demanded. C) supply of labor. D) quantity of labor supplied. 56) If the real wage rate decreases from $8.00 per hour to $7.50 per hour, the A) quantity demanded of labor increases. B) demand for labor increases. C) quantity supplied of labor increases. D) supply of labor increases. 57) The real wage rate and the quantity of labor demanded are

A) not related. B) directly related. C) inversely related. D) independent. 58) The demand for labor reflects the point that the A) lower the real wage rate, the greater the quantity of labor demanded. B) higher the real wage rate, the greater the quantity of labor demanded. C) real wage rate does not effect the quantity demanded of labor. D) nominal wage rate and not the real wage rate determines the quantity of labor demanded. 59) The demand for labor curve is A) a vertical line because firms have to hire labor. B) upward sloping, showing that as the real wage rate increases, more workers are hired. C) a horizontal line because we assume that the real wage rate is fixed. D) downward sloping, showing that the quantity of labor demanded increases when the real wage falls. 60) A firm's demand for labor depends on the A) nominal wage rate because it pays workers in dollars. B) real wage rate, which equals the nominal wage divided by the price level. C) real wage rate, which equals the nominal wage divided by the hours worked. D) nominal wage rate, which equals the real wage divided by the price level. 61) The quantity of labor demanded by a firm depends upon A) the nominal wage rate not the real wage rate. B) the real wage rate not the nominal wage rate. C) both the real wage rate and the nominal wage rate. D) neither the real wage rate nor the nominal wage rate. 62) A firm hires labor up to the point where the A) real wage rate equals the nominal wage rate. B) additional hour of labor produces extra output that equals the real wage rate. C) additional hour of labor produces extra output that equals the nominal wage rate. D) firm can sell the extra output. 63) As long as an additional worker hired by a firm produces A) more output than the real wage rate, the firm will hire that worker. B) more output than the real wage rate, the firm will not hire that worker. C) less output than the real wage rate, the firm will hire that worker. D) some output, the firm will hire that worker. 64) Hershey Chocolate Factory pays a money wage rate equal to $22.50 per hour and sells its candy bars for $1.25 each. Hershey Chocolate Factory should hire labor until an additional unit of labor produces ____ candy bars an hour. A) 10 B) 15 C) 18 D) 22

65) Loafing the Day Away bread company sells fresh bread for $4.00 a loaf. If the last worker hired adds an additional 7 loaves of bread per hour, then the money wage rate is ____ per hour. A) $4.00 B) $7.00 C) $14.00 D) $28.00 66) The Bubby Gum factory produces bubble gum. Joanne is one of the employees, and she produce 10 packs of bubble gum per hour. Joanne's money wage rate is $12 per hour. Based on this information, the Bubby Gum company should A) keep Joanne because she creates a profit for the firm. B) fire Joanne because she creates a loss for the firm. C) decrease Joanne's wage rate because she is paid too much. D) None of the above answers are correct because more information is needed to decide what to do with Joanne. 67) The Bubby Gum factory produces bubble gum. Joanne is one of the employees, and she produces 10 packs of bubble gum per hour. Joanne's money wage rate is $12 per hour. If a packet of bubble gum sells for $1.00, then A) Joanne is creating a $2.00 per hour loss for the firm. B) Joanne is creating a $2.00 per hour profit for the firm. C) the Bubby Gum company should decrease the price of the bubble gum so it sells more and makes a larger profit. D) the Bubby Gum company should pay Joanne more. 68) To maximize profits, firms hire labor as long as A) each additional hour hired produces more additional output than the real wage rate. B) the total hours hired produces more additional output than the real wage rate. C) each additional hour hired produces more additional output than the nominal wage rate. D) the quantity of labor supplied increases as the real wage rate increases. 69) An increase in the wage rate ____ the quantity of labor supplied and ____ the quantity of labor demanded. A) increases; increases B) increases; decreases C) decreases; increases D) decreases; decreases 70) For a household, the opportunity cost of not working is the A) nominal wage rate. B) real wage rate. C) cost of living. D) None of the above answers is correct.

71) Which of the following statements is true? A) As the real wage rate increases, the household's income decreases, which influences people to work more hours. B) As the real wage rate increases, the quantity of labor demanded increases. C) As the real wage rate increases, the opportunity cost of not working increases. D) As the real wage rate increases, the opportunity cost of leisure time decreases. 72) The supply of labor is defined as the relationship between the real wage rate and the A) quantity of labor supplied by firms. B) amount of jobs supplied by firms. C) quantity of labor supplied by households. D) amount of jobs supplied by households. 73) Households increase the quantity of labor supplied when the A) real wage rate rises because the opportunity cost of not working falls. B) nominal wage rate rises because the real wage rate must also rise. C) real wage rate rises because the opportunity cost of not working rises. D) nominal wage rate falls because the opportunity cost of not working rises. 74) Households increase the quantity of labor supplied when A) the real wage increases. B) the real wage decreases. C) job opportunities increase. D) None of the above answers is correct. 75) Holding all other influences constant, the quantity of labor supplied in a given time period depends A) inversely on the real wage rate. B) directly on the real wage rate. C) inversely on the quantity of labor demanded. D) on the money wage rate not the real wage rate. 76) The labor market is in equilibrium whenever A) the nominal wage is decreasing. B) the nominal wage is increasing. C) the real wage is decreasing. D) None of the above answers is correct. 77) A surplus of labor is eliminated by ____ in the real wage rate and a shortage of labor is eliminated by ____ in the real wage rate. A) an increase; an increase B) an increase; a decrease C) a decrease; an increase D) a decrease; a decrease 78) A surplus in the labor market indicates that the A) real wage rate is too low. B) quantity of labor demanded is less than the quantity of labor supplied.

C) real wage rate has to rise before the labor market will reach equilibrium. D) workers are not looking for work because they enjoy their leisure time. 79) When the labor market is in equilibrium, A) the quantity demanded of labor equals the quantity supplied. B) there is full employment. C) potential GDP is produced. D) All of the above answers are correct. 80) When the labor market is in equilibrium, A) there is excess labor supplied, which keeps real GDP less than potential GDP. B) there is full employment, which means that real GDP equals potential GDP. C) the real wage rate falls to equal the nominal wage rate because real GDP is greater than potential GDP. D) the real wage rate rises to allow real GDP to equal potential GDP. Real wage rate Qty of labor demanded Qty of labor supplied (1996 $/hour) (bn hours/yr) (bn hours/yr) 40 200 320 35 220 310 30 240 300 25 260 290 20 280 280 15 300 270 81) The table above shows the labor demand and labor supply schedules for a nation. The equilibrium real wage rate is ____ and the equilibrium quantity of labor is ____ billions of hours per year. A) $25; 260 B) $20; 280 C) $20; 260 D) $15; 260 Real wage rate Qty of labor demanded Qty of labor supplied Employment real GDP (1996 $) (bns hrs/yr) (bns hrs/yr) (bns hrs/yr) (bns $1996) 50 80 100 60 2.0 40 90 90 70 3.0 30 100 80 80 3.7 20 110 70 90 4.2 10 120 60 110 4.5 82) The tables above show a nation's labor demand and labor supply schedules and its production function. The equilibrium real wage rate is ____ and the equilibrium quantity of labor is ____ billion hours per year. A) $50; 100 B) $40; 90 C) $30; 80 D) $40; 80 83)

The tables above show a nation's labor demand and labor supply schedules and its production function. Given the equilibrium in the labor market, potential GDP is A) $3.0 trillion. B) $3.7 trillion. C) $4.2 trillion. D) $4.5 trillion. 84) In the year 2000, the U.S. GDP was $10 trillion. The quantity of labor employed was approximately 350 billion hours and the average wage rate was $20 per hour. What was the total income earned by labor? A) $7 billion B) $3 billion C) $7 trillion D) $3 trillion 85) In the year 2000, the U.S. GDP was $10 trillion. The quantity of labor employed was approximately 350 billion hours and the average wage rate was $20 per hour. What percentage of GDP was distributed to labor? A) 50 percent B) 65 percent C) 30 percent D) 70 percent 86) Compare the decade of 1960s to the 1990s. Over this time period the equilibrium real wage rate has ____ and the equilibrium quantity of labor has ____. A) increased; increased B) increased; decreased C) decreased; increased D) decreased; decreased 87) If we compare the United States in the 1960s to the United States in the 1990s, we find that the A) real GDP in the 1960s was greater than the real GDP in the 1990s. B) real wage rate in the 1960s was greater than the real wage rate in the 1990s. C) share of income earned by labor was similar in both decades. D) level of real GDP was the same in each decade. 88) If we compare labor productivity, the real wage rate, and potential GDP in the United States during the 1960s and the 1990s, we find that in the 1990s A) labor productivity had fallen, the real wage rate had risen, and potential GDP had increased. B) labor productivity had risen, the real wage rate had fallen, and potential GDP had increased. C) labor productivity had risen, the real wage rate had risen, and potential GDP had increased. D) labor productivity had fallen, the real wage rate had fallen, and potential GDP had decreased. 89) In the United States between the 1960s and the 1990s, the productivity of labor increased. This increase led to

A) an increase in the demand for labor. B) an increase in the supply of labor. C) a downward shift of the production function. D) a decrease in the supply of labor. 90) If the economy is at its rate of full employment then the unemployment rate is A) equal to zero. B) equal to the natural rate. C) below the natural rate. D) above the natural rate. 91) The average unemployment rate in the United States during the 1950s was A) above 7 percent. B) above 10 percent. C) between 7 and 10 percent. D) below 5 percent. 92) If we compare the average U.S. unemployment rates over the past 5 decades since the 1950s, we see that the A) 1990s had the highest average unemployment rate. B) unemployment rate has steadily declined since the 1950s. C) unemployment rate was highest in the 1980s and lowest in the 1950s. D) unemployment rate was the lowest in the 1990s and highest in the 1960s. 93) In the United States, over the past 50 years the natural unemployment rate A) has been constant. B) has steadily declined. C) peaked during the 1980s. D) reached its lowest levels during the 1990s. 94) The increase in the average unemployment rate in the 1970s was the result of A) the reduction of overly generous unemployment benefits in the 1970s. B) an increase in the birth rate in the early 1970s. C) an increase in the birth rate in the late 1940s and early 1950s. D) higher real wage rates. 95) A demographic change that could influence the duration of job search is A) an increase in health care coverage provided by unemployment benefits. B) a structural change arising from new technology. C) the government providing tax credits to businesses that provide on-the-job training. D) a decreasing number of new entrants into the labor force. 96) A newspaper headline reads "A New Wave of Baby Boomers Enters the Job Market!" This wave of young, new entrants to the labor market is likely to lead to A) an increase in the unemployment rate. B) a decrease in the unemployment rate. C) no effect on the unemployment rate. D) a decrease in the country's potential GDP.

97) If the amount paid as unemployment benefits decreases, the opportunity cost of job search A) rises and people would stay unemployed longer. B) is not affected because unemployment benefits do not change job availability. C) rises and people stay unemployed for a shorter time. D) falls and people stay unemployed for a shorter time. 98) France offers its citizens unemployment compensation for up to 24 months. The benefits include income near the level the citizen earns when employed and health care coverage. The United States offers its citizens unemployment compensation for up to 6 months. The benefits include income that is most often far below the level the citizen earns when employed and does not include health care coverage. From this information, it is likely that the natural unemployment rate is A) greater in France than in the United States. B) less in France than in the United States. C) equal in France and the United States. D) near zero in France, and much greater than zero in the United States. 99) The lower the amount of unemployment benefits citizens receive, the A) higher the opportunity cost of job search. B) lower the opportunity cost of job search. C) the higher the natural unemployment rate. D) the longer people search for jobs. 100) The length of time people spend in search of a job increases if A) the population ages. B) unemployment benefits increase. C) the criteria necessary to qualify for unemployment benefits increases. D) there is a sudden change in technology. 101) France is considering implementing policies that will reduce the duration of job search. A possible option is for France to A) increase the minimum wage. B) help negotiate higher union benefits for employed workers. C) reduce unemployment benefits. D) require all residents between the ages of 19 and 26 to obtain a part-time or full-time job. 102) Data indicate that the natural unemployment rate in Canada is 3 percentage points higher than the U.S. natural unemployment rate. This difference is most likely the result of differences in A) natural climate. B) population. C) the value of the currency. D) the unemployment benefits. 103) If we compare the Canadian natural unemployment rate to the U.S. natural unemployment rate, we find A) they are essentially the same because we have a lot in common. B) the Canadian rate is about 3 percentage points higher, possibly the result of higher unemployme

nt benefits in Canada. C) the U.S. rate is about 3 percentage points higher, possibly the result of greater job search within a larger country. D) the Canadian rate is about 3 percentage points higher, possibly the result of higher unemployment benefits in the United States. 104) Structural change influences the unemployment rate and such structural change is created by changes in A) real GDP. B) the seasons. C) technology. D) population. 105) Efficiency wages, above equilibrium minimum wage rates, and higher union wages are likely to A) increase the natural unemployment rate. B) increase cyclical unemployment. C) reduce the equilibrium real wage rate. D) increase the equilibrium real wage rate. 106) Job rationing occurs when the real wage rate is A) below the equilibrium rate causing an excess supply of labor. B) above the equilibrium rate causing a shortage of labor. C) at the equilibrium rate and there is no excess supply of labor. D) above the equilibrium rate causing an excess supply of labor. 107) The presence of efficiency, minimum and union wages A) can explain job rationing because they lower the natural unemployment rate. B) can explain job rationing because they raise the real wage rate above equilibrium. C) can explain job rationing because they lower the real wage rate below equilibrium. D) does not effect job rationing because they affect only the amount of job search. 108) An efficiency wage is designed to A) induce more work effort. B) keep the minimum wage from rising. C) keep the minimum wage from falling. D) to induce more employment. 109) Efficiency wages are A) the legal minimum wage a firm can pay a worker. B) a possible cause of job rationing because they drive wages below their equilibrium level. C) a possible cause of job rationing because they drive wages above their equilibrium level. D) a possible cause of job rationing because they force wages to equal their equilibrium level.

110) The figure above shows the market for fast food restaurant employees in a college town. The local Taco Bell pays its workers $9 an hour. This wage rate is A) an efficiency wage aimed at reducing employee turnover. B) designed reduce the unemployment rate. C) an effort to increase the demand for labor. D) the actual equilibrium wage rate. 111) To increase workers' incomes, the City of New York's government set a wage below which it is illegal for employers to pay employees. This wage is referred to as the A) minimum wage. B) efficiency wage. C) government wage. D) union wage. 112) The minimum wage is a A) possible cause of job search because it lowers wages below their equilibrium. B) possible cause of job rationing because it lowers wages below their equilibrium. C) government established highest wage that is legal to pay. D) possible cause of job rationing because it raises wages above their equilibrium. 113) If the minimum wage is set A) below the equilibrium wage, it will create unemployment. B) above the equilibrium wage, it will create unemployment. C) equal to the equilibrium wage, it will create a shortage of labor. D) below the equilibrium wage, it will create a shortage of labor.

114) In the above figure, a minimum wage will not change the unemployment rate if it is set at A) $5.00. B) $7.00. C) $10.00. D) None of the above because the minimum wage always affects the unemployment rate. 115) It is estimated that, on the average and without taking account of skill differentials, union wages are A) less than nonunion wages. B) equal to nonunion wages. C) 30 percent higher than nonunion wages. D) 100 percent higher than nonunion wages. 116) The presence of union wages leads to A) a fall in the real wage rate as fewer people are hired. B) a fall in the real wage rate as more people are hired. C) less job search as more workers are hired. D) job rationing because the real wage exceeds the equilibrium real wage. 117) The Fair Labor Standards Act originally set the minimum wage at A) $1.25 in 1983. B) $1.25 in 1938. C) $0.25 in 1938. D) $0.25 in 1983. 118) If we look at the minimum wage as a percentage of the average wage rate since 1960, we see that it has A) remained at almost precisely 50 percent of the average wage rate. B) fluctuated between a high of 55 percent to a low below 40 percent of the average wage rate.

C) been consistently above 65 percent of the average wage rate. D) been consistently below 35 percent of the average wage rate. 119) As a percent of the average wage rate, the minimum wage rate A) has generally increased since the 1960s. B) has generally decreased since the 1960s. C) was about 50 percent in the 1990s. D) was about 40 percent in the 1960s. 120) If government regulations on production become more restrictive so that firms can produce less, then the aggregate A) demand curve shifts rightward. B) demand curve shifts leftward. C) supply curve shifts rightward. D) supply curve shifts leftward. 121) If the government of the United States decides to significantly increase its expenditure on exploring space, then the aggregate A) demand curve shifts rightward. B) demand curve shifts leftward. C) supply curve shifts rightward. D) supply curve shifts leftward. 122) The United States central bank, the Federal Reserve System, announced yesterday that it is taking action to reduce the interest rate. Other things remaining the same, this action leads to a ____ shift in the aggregate ____ curve. A) rightward; demand B) leftward; demand C) rightward; supply D) leftward; supply 123) If potential real GDP increases, then A) unemployment increases. B) the nation's production possibilities frontier shifts outward. C) the price level rises. D) None of the above answers is correct. 124) Which of the following is most likely to raise the unemployment rate? A) Aggregate demand increases. B) Aggregate demand decreases. C) Aggregate supply increases. D) None of the above are likely to raise the unemployment rate.

AS-AD and potential GDP Ch23 Economics Ch08 Macroeconomics MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) B 2) B 3) D 4) C 5) B 6) D 7) B 8) D 9) A 10) A 11) B 12) B 13) D 14) B 15) D 16) C 17) C 18) B 19) C 20) A 21) B 22) C

23) A 24) C 25) B 26) C 27) C 28) C 29) D 30) C 31) B 32) B 33) B 34) C 35) C 36) C 37) B 38) D 39) A 40) A 41) C 42) B 43) B

44) B 45) A 46) C 47) D 48) D 49) B 50) C 51) C 52) B 53) C 54) B 55) B 56) A 57) C 58) A 59) D 60) B 61) B 62) B 63) A 64) C 65) D

66) D 67) A 68) A 69) B 70) B 71) C 72) C 73) C 74) A 75) B 76) D 77) C 78) B 79) D 80) B 81) B 82) B 83) C 84) C 85) D 86) A

87) C 88) C 89) A 90) B 91) D 92) C 93) C 94) C 95) D 96) A 97) C 98) A 99) A 100) B 101) C 102) D 103) B 104) C 105) A 106) D 107) B 108) A

109) C 110) A 111) A 112) D 113) B 114) A 115) C 116) D 117) C 118) B 119) B 120) D 121) A 122) A 123) B 124) B